Andrew Butler KC considers the impact of Part 5 of and Schedule 8 to the Building Safety Act 2022, and supporting regulations, on the ability of landlords and managing agents to recover through the service charge the costs of remediating historic building safety defects in affected buildings.

Introduction

In a previous article on the Building Safety Act 2022 (BSA 2022), I bemoaned the difficulties the Act potentially caused for those involved in the sale and purchase of leasehold properties and their professional advisers. The purpose of this article is to consider the problems it causes for another group – landlords and managing agents.

Landlords of course have an even more direct interest in the provisions of Part 5 of and Schedule 8 to the BSA 2022, because they directly affect the ability to recover service charge in respect of “relevant defects” in “relevant buildings” (concepts explained in my previous article).

The ability of landlords to recover such service charges depends on their compliance with two different certification procedures.

One of these relates to the Leaseholder Deed of Certificate. The second relates to the Landlord Certificate. I propose to say a few things about each.

The Leaseholder Deed of Certificate

Why is the Leaseholder Deed of Certificate important? Well, to recap: the majority of the protections in Schedule 8 to the BSA 2022 are only available to tenants under qualifying leases. To be a qualifying lease, a lease must meet certain criteria which are set out in section 119 of the BSA 2022 (it must have been granted before 14 February 2022, be more than 21 years in duration, and contain an obligation to pay a service charge). But the property in question must also be the only or principal home of a leaseholder who does not own (on freehold or long lease) more than two other dwellings in the UK apart from their interest under the lease. I will refer to this as condition 4.

The relevance of the Leaseholder Deed of Certificate is that, by virtue of paragraph 13(2) of Schedule 8 to the BSA 2022, compliance with condition 4 is assumed if a landlord has not taken all reasonable steps (and all prescribed steps) to obtain one.

The prescribed steps are set out in regulation 6 of the Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations (SI 2022/859) (BSLPI Regulations 2022). This regulation contains a highly choreographed sequence of stages involving the provision of an initial notice, and reminder notice, in particular forms and by particular times.

I do not propose to set out the requirements of regulation 6 of the BSLPI Regulations 2022 in all their detail. Reference should be made to the regulations themselves for that. I do however want to say something about what starts this process. The trigger for its commencement is the landlord becoming aware of one of two things: either that there is a relevant defect in the building in question, or that the lease is “to be sold” (regulation 6(11), BSLPI Regulations 2022).

As is often the case with the BSA 2022, apparently simple statements give rise to a multiplicity of questions. To identify two questions which arise in this instance:

• It is not entirely easy to be clear when a landlord (particularly, as most will be, a corporate landlord) “becomes aware” of something.  The BSA 2022 does not say whether the relevant concept is actual knowledge or constructive knowledge (one assumes, actual knowledge), nor whose awareness within any given organisation matters for this purpose. There is of course a large body of case law dealing with corporate knowledge (see, for example, El-Ajou v Dollar Land Holdings Plc (No.1) [1994] BCC 143); presumably, that will be relevant in this context. However, such is the fact-sensitivity of the area that it may be difficult even for a landlord to know, in any given case, whether it was aware or not.
• The provision that time starts to run on the landlord becoming aware that a lease is “to be sold” could almost be designed to obfuscate.  What does “to be sold” mean? Does it mean knowledge that a leaseholder wants to sell? That the leaseholder has put, or is putting, the property on the market? That a sale has been agreed? Or that contracts have been exchanged? There is no guidance on any of this. The writer’s (untested) view is that, as a matter of simple language, the earliest it can probably be said that a lease is “to be sold” is when terms are agreed with a purchaser.

Landlords should also keep in mind that it is not enough to follow the steps prescribed by the BSLPI Regulations 2022. Paragraph 13(2) of Schedule 8 to the BSA 2022 provides that they must also take “all reasonable steps”. What that requires is not explored by the Act. But, to give an example, if a leaseholder who has been sent a notice is in contact with a landlord for some unrelated reason (say, to report a nuisance) it might well be considered reasonable to remind the leaseholder of the request for a certificate (and, conversely, unreasonable not to do so). Landlords would be well advised to have a system of alerts on their files so that their officers are aware, in any dealing with the tenant, that a request for a certificate is outstanding.

Two other areas that are ripe for debate are (a) what happens if the landlord is not aware of either a relevant defect or an impending sale; and (b) what happens if a Leaseholder Deed of Certificate is false.

As to (a), it can hardly be said, if a landlord is ignorant of any of the things which trigger the certification procedure, that it has failed to take reasonable/prescribed steps to pursue it. In such a situation, it seems probable that the question of whether condition 4 is satisfied will simply be a question of fact to be decided by whichever Tribunal is confronted with it. The deeming provisions are just that: they demand a certain result in certain circumstances. But absent those circumstances, the point has to be proved in conventional ways.

Point (b) demands a similar approach. Nowhere does the BSA 2022 say that a Leaseholder Deed of Certificate is conclusive proof of whether condition 4 is satisfied. All the Act says is that if a Certificate has not been properly sought, the condition will be deemed satisfied. So, while the provision of any Leaseholder Deed of Certificate will free the landlord from its obligation to seek one (regulation 6(3) of the BSLPI Regulations 2022 makes it clear that the landlord does not have to take all the steps required by regulation 6 if a Certificate has in fact already been provided), it is the writer’s view that this does not necessarily mean that condition 4 really is satisfied. It will still be open to a landlord to prove, in court or tribunal proceedings, that it was not.

The Landlord Certificate

The requirements of the Landlord Certificate are the subject of the Building Safety (Leaseholder Protections) (England) Regulations 2022/711 (BSLP Regulations 2022). These are an even bigger headache for landlords.

To again first place them in context: if a Landlord’s Certificate has not been provided when it should have been, two results will flow.

First, all relevant defects will be treated as the landlord’s responsibility (see regulation 6(7), BSLP Regulations 2022). This means that the condition in paragraph 2 of Schedule 8 to the BSA 2022 will be treated as satisfied, and the landlord will not be able to recover any service charge relating to measures taken to remediate them. It should be noted that this applies to all leases, not just qualifying leases.

Second, and by virtue of paragraph 14(1) of Schedule 8 to the BSA 2022, the landlord will be treated as meeting the so-called “contribution condition”, with the consequence that the protection in paragraph 3 of Schedule 8 will apply, and on that basis too the landlord will not be able to recover service charges relating to measures taken to remedy relevant defects.

It might be asked what this second consequence adds, given that anything covered by it will also be covered by the first consequence. That is not a question to which I currently have an answer.

The provision of the BSLP Regulations 2022 which sets out the requirements for the Landlord’s Certificate is, coincidentally, again regulation 6. As with the BSLPI Regulations 2022, I intend to focus on the trigger events. They are four in number. A Landlord Certificate must be given:

• When the current landlord makes a demand to a leaseholder for the payment of a remediation service charge;
• Within four weeks of:
  • the receipt of notification that the leasehold interest is to be sold (that phrase again);
  • becoming aware (and that phrase again) of a relevant defect not covered by a previous landlord’s certificate;
  • request by the leaseholder.

Furthermore, a certificate must be given on each such occasion. It is not good enough to give it once.

But the real devil of the BSLP Regulations 2022 is in what the Landlord Certificate must contain – a bewildering level of detail relating to the past and present control structure and financial situation not only of the landlord itself, but any of its associated companies (association itself being a complex concept which is the subject of section 121 of the BSA 2022); of relevant trust relationships (that is, if the landlord’s interest is held on trust, where that trust is tax resident, what law governs it and who the beneficiaries are) and of the history of relevant defects going back to 28 June 2017. Again, reference should be made to the BSLP Regulations 2022 themselves to see precisely what is required.

Compliance with these requirements will be a monumental task for landlords. The good news, to the extent there is any, is that much of what is required is constant so that, once one certificate has been provided, much of what it contains can be replicated in subsequent ones (although for example, the most up-to-date control and financial information will need to be provided). It is a little hard, too, to see what the ordinary leaseholder would make of what will presumably be a voluminous body of apparently irrelevant documentation routinely and repeatedly accompanying service charge demands. It is not hard to imagine that files marked B for Bin (or R for Recycle) will be getting quite a lot of use.

Unlike the requirements for a notice under the BSLPI Regulations 2022, the BSLP Regulations 2022 contain no direction as to the means by which a Landlord’s Certificate should be sent (that is, whether by e-mail or post). Regulation 6(1) of the BSLP Regulations 2022 merely says that the Landlord’s Certificate should be “provided”.

Recognising that some of the information required in a Landlord’s Certificate may not be available to a current landlord, the BSLP Regulations 2022 contain, at regulation 7, a mechanism whereby information may be sought from previous landlords.

This is, however, a somewhat half-hearted concession. For one thing, the previous landlord has three weeks to provide the information, so a landlord who is operating under the four-week turnaround time imposed by regulation 6(1)(b) to (d) has very little time to both ask for, and process, information provided in this way. Secondly, and unlike the regimes governing the Leaseholder Deed of Certificate and the Landlord Certificate, the BSLP Regulations 2022 are silent as to what happens if the previous landlord does not comply with such a request. Or, indeed, how a current landlord is expected to get the information it needs if the previous landlord no longer exists.

Common to both the Leaseholder Deed of Certificate regime, and that pertaining to the Landlord’s Certificate, is the striking absence of a provision allowing any leeway either as to the form of the document the landlord must provide (for example a provision allowing reliance on something to “substantially the same effect” as the prescribed form) or the timing of it (for example a provision allowing the parties to agree, or the landlord to seek an order for, an extension of time). The message underpinning the new regime is clear: absent anything other than strict compliance with these very exacting regimes, relevant service charges will not be recoverable.

All of which can probably be summed up in two words: landlords – beware.

This article first appeared in Practical Law’s Property Litigation Column.

Tanfield are running an all day conference on the Building Safety Act 2022 on 24th May 2023.  Whilst the event itself is sold out, if you are interested in obtaining a copy of the materials, please contact Evangeline Brewins.